Sent Items #152: Wednesday, April 17, 2024

Happy Wednesday!

I’ll be in Miami next week … hit reply if you are in town, would love to get together.

I’ve heard about 4 different 3PLs/4PLs in the last month that are closing their doors or significantly reducing their workforce. While it’s a miniscule percentage relative to the overall market (my belief is there are literally thousands of 3PLs) there are many others that have been sitting at far too much capacity for too long. 

Those who’ve been subscribed here for months and years or who see my occasional rants on LinkedIn or Twitter know that I’ve been foreshadowing this reality for quite some time. The reality that certain businesses really shouldn’t be - but were due to the influx of blind investment capital chasing the next hot Amazon-like logistics co of the early 2020’s.

Let’s take a look at 4PLs - without naming names - if I had a nickel for every time a VC/PE shop asked what I thought about the model, shared my honest, genuine opinion (I’m not one to sugarcoat!) and still proceeded with investing, gosh, I’d have at least a dollar or two in my pocket. While I’ll never root for failure in the industry - in fact, I believe a rising tide lifts all ships - it is validating, maybe somewhat vindicating, when the gravitational forces of physics get to work in capitalism.

The reason it’s so common to hear brands say "I hate my 3PL!" is because brands treat their 3PL decision as if they walked into a crowded bar on a Friday night, picked out a random, similarly aged looking, attractive, presumably single person and said, "let's get married!"  Of course that's not likely to work out for them.

There is so much more to determining a great fit between two people, and I feel this dynamic is similar between a Brand and 3PL.

We’ll see how things shake out in the coming quarters, but unfortunately, I think there’s much additional shakeout before the market begins to calibrate more appropriately. 

I want to get into the headlines but briefly remind y’all that last month I launched a new business called Third Person, a digital marketplace that enables eCommerce brands to discover and engage with 3PLs (i.e. fulfillment providers). It’s a completely new way for brands to find the right 3PL, receive personalized matches, review 3PL profiles and connect with them (and it’s free!)

If you are a brand looking for your first or next 3PL, we’d love to have you sign up here (link).

If you are a 3PL, you can enroll on the platform here (link).

Now onto some stories…

CEO Andy Jassy’s 2023 Letter to Shareholders (link)

• Amazon’s annual shareholders letter - once penned by Jeff Bezos - is always a great read to get an understanding of the market. Some highlights:

• As we look toward 2024 (and beyond), we’re not done lowering our cost to serve. We’ve challenged every closely held belief in our fulfillment network, and reevaluated every part of it, and found several areas where we believe we can lower costs even further while also delivering faster for customers. Our inbound fulfillment architecture and resulting inventory placement are areas of focus in 2024, and we have optimism there’s more upside for us.

• This has helped them lower its “cost to serve” - the cost to get a product from Amazon to a customer - by more than $0.45/unit in the U.S. compared to a year ago.

• Jassy identified the company’s 58 same-day fulfillment facilities, which have helped them increase the number of items delivered either same-day or overnight by more than 65% year over year in Q4.

• “They’re located in the largest metro areas around the U.S., house our top-moving 100,000 SKUs (but also cover millions of other SKUs that can be injected from nearby fulfillment centers into these same-day facilities) and streamline the time required to go from picking a customer’s order to being ready to ship to as little as 11 minutes,”.

From Cubicle to Corporate Icon, Costco Finance Chief Ends 40-Year Run (link)

• A story paying homage to the recently retired CFO of Costco, who’d been in the role for FOURTY years!  A few great tidbits in here:

• Costco carries just 3,800 unique products. A more typical supermarket or discount supercenter may have between 50,000 and 100,000 items.

• Costco’s roughly 10% growth for 30 successive years. The retailer’s own brand, Kirkland Signature, alone does more than $50 billion in revenue annually, just shy of what global brands such as Nike brought in in the latest fiscal year. There is greatly reduced expense and little art in stocking the store once inventory reaches a Costco warehouse. “Think about, at a store where every can has to be put there and made to look pretty, whereas we have a forklift operator putting 2,000 cans for sale with a pallet and ripping off the plastic,” Galanti said. 

• The company has an internal cap on the markups it will take on a product—15% for Kirkland Signature products and 14% for any others. Supermarkets tend to work on a mid- to high-20% markup, analysts said.

The US Postal Service wants to hike stamp prices again in July. Here’s how much you’ll pay (link)

• The US Postal Service filed a notice with its regulators to increase prices on First-Class “Forever” stamps to 73 cents from 68 cents, marking yet another price hike for the financially beleaguered federal agency.

• If approved by the Postal Regulatory Commission, the change would take effect in July, raising the cost of mailing services products by nearly 8%.

• Stamp prices alone have soared 36% since 2019 when they used to cost 50 cents. The Postal Service last raised First-Class stamp prices by two cents in January, just a few months after it raised prices three cents in July 2023.

Temu Sets Up U.S. Warehouses (link)

• Temu has set up U.S. warehouses for sellers on its growing marketplace to offer faster delivery.

• Thirty days ago, Temu launched a marketplace to increase the supply of goods with faster delivery. Previously, each order shipped from China, and despite using air freight and other optimizations, it typically took a week to reach the shopper. Temu’s new marketplace is for sellers with inventory already in the U.S. (or Europe, or elsewhere Temu operates). They can deliver goods significantly faster than a week.

• Most goods on Temu are sold using a consignment model that requires manufacturers to agree on wholesale pricing and ship goods in bulk to Temu’s processing warehouses in China. Temu then handles the listing, marketing, fulfillment, customer service, and pricing and pays the seller once someone orders their product. This model gave Temu control over quality, selection, and pricing but prevented it from onboarding sellers from other countries.

• Temu’s new fulfillment partners likely do little business with sellers outside of China, too. Temu’s marketplace is reducing its reliance on duty-free shipments enabled by the de minimis threshold ($800 in the U.S.) and growing inventory with faster delivery.

- Matt

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